This client alert summarises the recent announcement by the UK government concerning reforms to UK insolvency law to help struggling businesses, being:
The UK government proposes to put the reforms to Parliament at the earliest opportunity.
This alert is relevant to disrupted, stressed, and distressed companies, as well as their directors and creditors.
These changes will be supplemented with safeguards for creditors to ensure that they can be paid while a restructuring is negotiated.
The reforms are generally welcome, bringing the UK much closer to the US Chapter 11 framework. However, while the text of the bill is not yet available, there are likely to be some differences which could impact the effectiveness of the reforms:
As contemplated in our client alert, the government will retrospectively suspend the law on wrongful trading with effect from 1 March 2020. Usually, directors could be personally liable for wrongful trading if they continued to trade when they:
The suspension of these rules, mirroring similar moves in Germany and Australia, will give directors the headroom they need to continue trading and utilise the government’s support packages (see our 20 March 2020 client alert) with less risk of personal liability for making the wrong call.
The new restructuring tools set out above represent a much-anticipated overhaul of the UK’s regime, which has been largely untouched since 2003. This is a longer-term measure, and which many consider will make the UK a more attractive jurisdiction for the restructuring of domestic and foreign companies.
Meanwhile, the temporary suspension of wrongful trading will enable directors to continue to trade and make use of government support with less fear of personal liability.
We will be monitoring the situation as these reforms are brought into force.
Christopher Lloyd, London Trainee Solicitor, contributed to the drafting of this alert.